Strategists Bet Canada’s TSX Will Hit 28,000 Next Year as Rates Fall

(Bloomberg) — Canadian investment strategists expect the country’s main stock index to keep up its momentum next year, even with possible tariffs from Donald Trump’s incoming administration hanging over the economy.

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Trump’s threats have disrupted Canadian politics and led economists to worry about a recession. Yet the S&P/TSX Composite Index is higher today than it was on US election day, and the benchmark has jumped about 18% this year, its best showing since 2021.

Rising corporate earnings and lower interest rates will help drive the equity benchmark toward a record 28,000 points in 2025, according to some market watchers, which would mean another year of double-digit returns in 2025.

Among those making that call is Philip Petursson, chief investment strategist at IG Wealth Management, who said Canadian stocks have more reasonable valuations than US equities, which gives them room to catch up.

“I think Canada has quite the edge over the S&P 500,” Petursson, who set his TSX target at 28,000 points, said in an interview. “If we are in an environment where US inflation and interest rates are going to be a little bit higher, Canada looks quite attractive.”

The TSX got off to a slow start this year before gaining speed after the Bank of Canada began its rate-cutting cycle in June. The central bank has delivered five successive rate cuts, bringing the overnight rate down to 3.25%. That’s a full 125 basis points below the upper bound of the Federal Reserve’s policy rate.

Policymakers in Canada will keep cutting, bringing the overnight rate to 2.5% by the middle of next year, according to economists surveyed by Bloomberg.

Easier central-bank policy helped give a tailwind to technology and financial shares, making them the best performers of the TSX’s 11 major subgroups. Shopify Inc., the biggest tech heavyweight in Canada, is up 50%. Gold rallied, as it sometimes does when borrowing costs decline, boosting precious metals companies.

BMO Capital Markets strategist Brian Belski has a TSX target of 28,500 by the end of next year, and expects valuations to expand thanks to rate cuts and a rebound in flows into Canadian stocks.

“Overall, we believe that the Canadian recovery trade remains in its early stages,” Belski told clients last month.

Economists surveyed by Bloomberg are forecasting a pickup in growth next year to 1.8%, from an expected rate of 1.2% this year — though Trump’s trade policy is a big source of uncertainty.

The Canadian dollar has been weak — slower growth, lower rates and Trump are the key factors. But the TSX benefits “quite strongly” from that, Petursson said, because it has so many companies with a sizable percentage of US-dollar earnings, which are worth more when converted back into loonies. For exporters, a lower Canadian dollar would be a partial offset to tariffs.

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